BARRIE CASSIDY: In what way is the Australian economy in crisis, what justifies the use of the term budget emergency?

JOE HOCKEY: Well we didn't say the economy is in crisis, we said the budget is facing huge challenges. We used the term budget emergency because this Government keeps promising surpluses but it actually never delivers.

Now, the challenge for Australia is this: we are a net importer of capital and we rely on money coming from the rest of the world every year to fund our lifestyles. Between $40 to $50 billion, it varies around that amount. Our banks borrow 20 to 30 per cent of their money from overseas. And when the Federal Government is in the market place borrowing money and competition with the banks, and up to 86 per cent of that money that the Federal Government borrows comes from overseas, we make ourselves more vulnerable and not less vulnerable to international market volatility. And that's why, Barrie, we've got to get to surplus and do it fast.

JOE HOCKEY: We can argue about the whole Fitch rating, which is very cute of Wayne Swan, but the fact is Standard and Poors gave us a Triple-A rating under the Coalition when Labor last lost it. Now, what we've seen is the rest of the world deteriorate so Australia looks pretty good against a number of other countries.

But the challenge for us, Barrie, is that our competition has changed. Our competition isn't Europe and it's not the United States in many areas, our competition is Asia for manufacturing jobs, South America for resource supplies. The world's changed and we've got to compete with the fastest runners in the field, not some of the slowest.

BARRIE CASSIDY: OK then, in the case of a budget emergency what do you need to do? I presume you cut spending even further than the Government has said it will?

JOE HOCKEY: Well, what you have to do now is make sure that you try and shape policy that gives people money in their pockets, and gives them a stable environment. Now, we have announced that we are going to keep the current tax rates and the pension rates. And we're doing that, even though part of those are compensation for the carbon tax, and we're doing so, and we've worked hard to do so, because it's vitally important that people just have some stability in their lives and stability in their budgets.

And what we've announced is that we are going to get rid of the carbon tax, so it means that they're going to be financially better off overall, but also we're going to reduce the size of government. And in reducing the size of government it's not the taxpayer directly that pays the price it's the fact that we reduce spending.

BARRIE CASSIDY: But will you cut spending further than the Government has done?

JOE HOCKEY: Well yes, we are, and we've already announced that.

BARRIE CASSIDY: And where will you do it?

JOE HOCKEY: Well for example, we have announced, Barrie, that we cannot afford to keep a school kids bonus, because that is funded out of a nonexistent mining tax. And that's one example as we announced, Tony Abbott announced again the other night, the public service is 20,000 larger than what it was in the last year of the Coalition government. We've said 12,000 will go through natural attrition in the first two years.

Now, even our harshest critics, Barrie, would say that Tony had more content in his speech and in reply on Thursday night than any other budget reply speech from any leader of the opposition. It was a very honest assessment of the books.

BARRIE CASSIDY: In a budget emergency why would you not support the means testing of private health insurance rebates?

JOE HOCKEY: The fact is the Government's been lying about the state of the books. And Australians know that. The only people that don't know that are the Government who need a real reality check.

BARRIE CASSIDY: Back to this initiative, you're saying it's going through so you won't touch it in government?

JOE HOCKEY: Well we're not. If necessary the savings that are not legislated by the Labor Party we will legislate as an emergency measure to deal with the challenge that we have. So all the savings that are announced...

BARRIE CASSIDY: But why did you oppose this in the first place?

JOE HOCKEY: Because we don't like the idea that you're making it harder for people to contribute to their own private health insurance.

BARRIE CASSIDY: But numbers have gone up. I do recall the Opposition saying that about a million people would withdraw from private health insurance, but in fact numbers have increased by 175,000.

JOE HOCKEY: Well I think what you'd find is that people have been prepaying their private health insurance to get advantage from the old scheme, and as will happen over time, inevitably, there will be an impact. But look, Barrie, we have to accept these things.

Can I say to you something that not many people realise...

BARRIE CASSIDY: But you were very late to the argument.

JOE HOCKEY: ... last year's budget savings - of last year's budget savings we estimate over $25 billion haven't been legislated by the Labor Party. Now, then they were announcing savings last Tuesday night, around $44 billion, and they said upfront they didn't think they'd get around to legislating most of it.

So what they're doing is leaving an almighty landmine for whoever is there on 15 September, whether it be Labor or Liberal. They are wrecking the joint on the way out. And I'd say to you, Barrie, someone has to make those hard decisions. We are prepared to do it because we have to build a stronger budget to build a stronger Australia.

BARRIE CASSIDY: One of the landmines was supposed to be the tax cuts. So again why on earth in an emergency situation do you give tax cuts as compensation for a carbon tax that won't exist?

JOE HOCKEY: Because we have to ensure that Australian consumers have confidence, Barrie. And this ... confidence is brittle at the moment. There is no trust of the Government. And what we're offering is a platform of stability for households, stability for pensioners, but we are going to reduce the size of government because we have to. That is necessary.

And Barrie, there are lots of difficult decisions that need to be made, but what we're doing is we're being honest with the Australian people about it.

BARRIE CASSIDY: This idea about stability, it was only a month or so ago that you said if there is no carbon tax there is no need for compensation; what changed?

JOE HOCKEY: Well I'll tell you what changed, the fact is that we've always said that we want to have tax cuts without the carbon tax. Quite obviously what Tony Abbott did was he announced that we are going to keep the current tax cuts in place and we are going to deliver stability.

Now, I'd just say this to you, Barrie. It's interesting, isn't it? A year ago Labor legislated in L-A-W, a further round of tax cuts and like Paul Keating they reneged on the L-A-W tax cuts. As long ago as two weeks or three weeks ago Julia Gillard was saying no, no, you're going to get the next round of tax cuts. And then they changed their minds on tax cuts.

What we're saying is we're offering stability, and I think that's hugely important at this time.

BARRIE CASSIDY: Stability on the tax cuts and at the same time you've delayed by two years the measures on the super guarantee?

And what we've said is the full flow through of the 12 per cent in superannuation will flow through two years later from 2019 to 2021.

BARRIE CASSIDY: So what effect will that have on, say, an average income earner at about 30 years old?

JOE HOCKEY: Well, none, none now.

BARRIE CASSIDY: Down the track?

JOE HOCKEY: Because it hasn't kicked in, Barrie, and it doesn't kick in...

BARRIE CASSIDY: Down the track?

JOE HOCKEY: Well down the track, pick a date. But you know I haven't got the actuarial tables here.

BARRIE CASSIDY: But on retirement, on retirement?

JOE HOCKEY: I don't have the actuarial tables in front of me. For a 30-year-old in what year? I mean what year are you talking about?

BARRIE CASSIDY: But it could like $20,000, that's the figure the Government put out there?

JOE HOCKEY: Well that's rubbish. This is typical Labor. That's exactly what they do. They manufacture a number and then repeat it ad nauseum as if it's fact.

I'll tell you what, Barrie, it doesn't affect people now or next year or the year after. And after that they're going to have more money in their pockets rather than in superannuation for just a short period of time - two years. And I'd say to you Barrie, what we have to deal with is a challenge now and we are offering stability to people right now.

The Labor Party cut $8 billion, $8 billion, in additional taxes out of superannuation. And when they were elected after saying they weren't going to change superannuation in 2007, just two years later they slashed $3.3 billion from low income people's co-contribution on superannuation.

So we're not going to cop these sanctimonious lectures from Labor about super.

BARRIE CASSIDY: But it's not just about the here and now, it's about the future as well. And won't this initiative of yours put further pressure on the aged pension system down the track?

JOE HOCKEY: No, not at all, not at all. I don't accept that at all.

BARRIE CASSIDY: At the same time you're putting up pensions you're delaying this initiative?

JOE HOCKEY: Well no, hang on, Barrie. We're delaying it from 2019 to 2021. Two years in, you know, if you think that is going to have a difference, make a difference, if we don't take these sorts of decisions now, Barrie, to try and repair the budget, if we don't make those decisions now Australians are going to pay a far higher price in lower wages and higher unemployment into the future. And I tell you what, they won't be worrying about their superannuation levels at that point.

BARRIE CASSIDY: There was report at the weekend that said that you had a meeting with industry executives, superannuation industry executives, in February where you gave a commitment to the guarantee; you said that was absolutely clear.

JOE HOCKEY: We are absolutely clear about supporting the guarantee going to 12 per cent. We've said that, and we're committed to it.

BARRIE CASSIDY: But you delayed it?

JOE HOCKEY: Well no, hang on. We said we're going from 2019 to 2021. And in addition we have said, unlike Labor, we have given a commitment that when we're in government, if we're in government, because we're not taking it for granted, if we're in government we will make no adverse decisions on superannuation.

Now what a stark contrast that is with what Labor's been doing over the last, you know, six months. I mean fair dinkum. To get a lecture on stability from Labor about superannuation policy and taxation is the height of hypocrisy, but not surprising.

BARRIE CASSIDY: Let's clear up this taxation review; that will be a priority of yours in government. What will the situation be there? The GST (Goods and Services Tax) and any possible increases in the rates and the broadening of the base will be part of that review?

JOE HOCKEY: Well if you're going to have a taxation review you need to consider all the issues and then take them to an election to seek a mandate before you implement them.

Now we've been very blunt about this. We have a process, we're the only party that has had the courage to go to the electorate to seek approval on changes, major changes to the tax system. And now we're getting a sanctimonious lecture from Julia Gillard about honesty in tax after she said a week before the election there would be no carbon tax. And Wayne Swan said there would be no carbon tax, and after the election they changed their minds. So what they're endeavouring to do is run a hysterical, shrill, scare campaign on the GST when there is none. We've announced a process, we haven't announced any tax changes.

BARRIE CASSIDY: What's your thinking on it at this point, have you got a view?

JOE HOCKEY: My view is that we've got to have open discussions with the Australian people about the state of the taxation system and how we can make it fairer, simpler, and obviously build the capacity to give everyone a fair go, rather than have what Labor does, a promise one week before an election not to have a tax and then three weeks after the election announce it.

BARRIE CASSIDY: But clearly you see some merit in broadening the base of GST?

JOE HOCKEY: Well that's a matter for the states. The states are the beneficiaries of the GST, Barrie.

BARRIE CASSIDY: But they don't necessarily drive it. It was the Howard government that introduced it.

JOE HOCKEY: But it was a trade off for a reduction in direct funding to the states. And the States are the beneficiaries of every dollar of the GST, and the states, every single state, every single state, Labor and Liberal, needs to support it and it needs to go through the Parliament if you're going to change it. And they need to convince the Australian people of changes to the GST, because the Commonwealth government has its own revenue sources and it has its own taxation system and it's separate in a sense to the GST.

BARRIE CASSIDY: So any taxation reform out of the review would be delayed three years until the election when you seek a mandate. But then if you have a double dissolution election, and that might happen because of rescinding the carbon tax, that would delay it further, wouldn't it, like four or five years before there would be any real reform?

JOE HOCKEY: Well no, what we've said is, and look, what you're doing is painting a range of scenarios. The first challenge for us is to win the next election, to get the Australian people to support us. And if we win that election we will have, in the first two years, a taxation process, discussion process with the Australian people, and with key stakeholders, and if an agreement comes out of that we will take it to the following election to seek the approval of the Australian people. And that is a good process.

I think importantly, Barrie, what we're doing is we're trying to re-establish the infrastructure of credible government and stable government, something that's been missing throughout Labor's period in office. We are determined to give stability back to the Australian people.

BARRIE CASSIDY: OK, we're almost out of time but a couple of quick things. You're delaying the superannuation but is there any risk that you would delay the NDIS, for example? Might you delay the full introduction of it?

JOE HOCKEY: No. No.

BARRIE CASSIDY: And no changes to its reach and impact?

JOE HOCKEY: No. Well the first thing is the Government has not answered all the questions on the National Disability Insurance Scheme. They're not being fair dinkum with the Australian people, and they're not being fair dinkum with people with disability about how far the scheme is going to go, exactly what services are provided. And they haven't been honest about how it's going to be paid for.

If you look carefully at the budget papers there's no 10 year detailed funding plan for the National Disability Insurance Scheme. It's a complete con job. And we call on the Government again to be upfront with the Australian people about how all these things are going to be paid for.

BARRIE CASSIDY: And on education funding, on Gonski, your position is that unless all states sign up then you're out. What would you say to Barry O'Farrell then when you withdraw effectively billions of dollars?

JOE HOCKEY: Well, it's not a case of withdrawing billions of dollars. You know what's interesting in the budget papers, it is that the Government's actually cutting education funding over the next four years. It's actually reducing it over the budget. But then they're saying 'oh well, some time into the future we will increase the funding, but not in these next four years. We're cutting education funding overall.'

I'd say to Barry O'Farrell, as I'd say to all the others, if you think it's the right thing for your state you do it, but if you don't, don't sign up and of course the Premier of Western Australia has said Western Australia will be worse off. Other states are expressing caution about it.

I don't know what Gonski looks like, what the whole education plan looks like, and I bet most Australians don't know what it actually means.

BARRIE CASSIDY: No, except Barry O'Farrell did say this morning he thinks the system is inequitable and needs fixing.

JOE HOCKEY: He thinks .. the current system may ... that's his view on the current system. But the question is: is everyone in Australia going to be better off with a change to what they call Gonski? Because from a federal perspective we need to lift the tide for all Australians, not one State, but for all Australians and that's the only way we're going to build a stronger Australia.